Cost of Living

Comparing salaries between cities

A larger salary in a more expensive city can be a pay cut. Cost-of-living indices let you convert an offer into the purchasing power you already understand, which is the only fair way to compare two places.

How it works

• Scales a salary by the ratio of the two cities' cost indices.
• Works in both directions: what you would need there, and what an offer there is worth here.
• Uses a base of 100 for the reference city, so an index of 130 means 30% more expensive.

equivalent salary = current × (index of new city ÷ index of current)

offer in home terms = offer × (index of home ÷ index of new city)

index 100 = reference city; 130 = 30% dearer; 80 = 20% cheaper

Worked example

Earning 90,000 in a city indexed at 100, considering an offer of 100,000 in a city indexed at 130.

1. to match your purchasing power: 90,000 × 130 ÷ 100 = 117,000
2. the offer is 100,000, which is 17,000 short of that
3. converting the offer back: 100,000 × 100 ÷ 130 = 76,923
4. so 100,000 there buys what 76,923 buys at home

The 100,000 offer is effectively a cut from 90,000 to 76,923 — a 15% reduction in real terms, despite an 11% rise in the headline number.

Reading the result

• Housing dominates the index and varies most. If you already own outright, or would be renting a very different size of home, the general index will mislead you. Compare actual rents for the actual property you would take.
• Tax is usually not in the index. Moving between countries can change your net pay by twenty percentage points before any cost-of-living effect, so compare net-to-net rather than gross-to-gross.
• Indices are city averages built from a fixed basket. If your spending differs sharply from the basket — no car, or a large family, or eating out constantly — the average will not describe you.
• One-off moving costs sit outside the comparison entirely. Relocation, deposits, furnishing and a period of double rent commonly reach several months of salary and are recovered only over years.

Common questions

Is a higher salary in an expensive city always worse?

No, but it is often worse than it looks. The test is whether the increase exceeds the index ratio. In the example, matching 90,000 at index 100 requires 117,000 at index 130; anything below that is a real-terms cut regardless of how much larger the number is.

What does the index actually measure?

A weighted basket of typical household spending — housing, food, transport, utilities, leisure — expressed relative to a reference city at 100. Housing carries the largest weight, which is why the index tracks property markets more closely than anything else.